Oranges, hogs, interest rates rise

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May 31, 2013

Here is this week’s edition of Futures File, our weekly commodities wrap-up:
 
Orange juice spikes
 
As hurricane season looms, orange juice prices have risen sharply on speculation that storms could cut into orange production. Scientists at the National Oceanic and Atmospheric Administration (NOAA) have projected a hyperactive hurricane season, increasing the likelihood that a major storm could damage Floridian orange groves. Florida is the world’s 2nd-largest orange producing region, second only to Brazil.
 
Even without hurricane damage, there are concerns that Florida’s crop will fall short due to citrus greening, a disease that is causing trees to prematurely drop fruit. Since last October, the USDA has downgraded its estimate of the size of Florida’s orange crop by more than 10 percent, helping to lift prices higher. During that same period, futures prices have risen by more than 50 cents per pound (+48%). As of Friday morning, frozen concentrated orange juice for delivery in July was worth $1.55 per pound, the highest price in over a year.
 
China loves pork
 
China’s insatiable appetite for meat was further exemplified this Wednesday when a Chinese meat processor tendered an offer for Smithfield Foods, the world’s largest producer of pork. This purchase, if consummated, would be the largest Chinese takeover of an American company, representing an expansion of China’s commodity control beyond metals and energy.
 
China is the second-largest importer of US pork, second only to Mexico, and this deal is expected to give the Chinese greater access to American meat production. China currently consumes nearly half of the world’s swine population, and demand for meat continues to rise in that nation as it industrializes.
 
Hogs for June delivery traded over 95 cents per pound this week, the highest price in over 10 months.
 
Interest rates rise
 
To stimulate the economy, the Fed has been pulling interest rates lower over the past few years, dropping short-term interest rates near zero and pushing long term rates, like mortgages to extreme low levels. As financial markets prepare for the US Federal Reserve to begin reducing its multi-year stimulus effort, interest rates have been climbing. Over the last six months, interest rates have rebounded, with the average 30-year mortgage rising from 3.5% to 4.0%.
 
The Federal Reserve is not guaranteed to withdraw stimulus in the coming months, so many traders are closely watching Fed statements and economic data to discern if and when stimulus may stop.

Comments

Contango

"Americans have rebuilt less than half of wealth lost to the recession, study says":

"...recent gains in the stock market mean that the recovery of wealth is nearly complete for white and Asian households and older Americans."

Looks like the "Obama Recovery" is not benefiting his core constituency.

Surprising huh? :)

http://www.washingtonpost.com/bu...

Contango

Over the past five years:

"Compensation from jobs increased only 8.2%, while investment income actually shrank 13.2% as the Federal Reserve's bond-buying programs squeezed those relying on interest payments.

Offsetting this has been a 35.3% surge in government payments such as Social Security and unemployment benefits."

Without the govt. transfer of payments along with the Fed's QE and ZIRP policies, the U.S. economy would be in the toilet.

"Personal Income Growth Is No Saving Grace":

http://online.wsj.com/article/SB...

Fromthe419

When the Fed is keeping the economy alive we are in trouble, late 90's tech bubble, 2007 housing bubble, not too far in the future currency bubble...game over. The Fed is printing like crazy (or digitizing) in it's last ditch hope to keep this debt based currency alive. The Fed creates bubble to make people feel rich in hopes they forget the previous bubble.

Contango

IMO, it looks a lot like the 1930s battle against deflation.

The $ (USD) rose as others attempted to get their assets out of failing economies. Watch the exchange rates of the € and the ¥.

The Cyprus asset grab demonstrated that NO ONE'S bank account is safe. The EU has no such thing as FDIC anyway.

We 'really' don't either:

http://online.wsj.com/article/SB...

As assets flowed into the U.S., FDR placed tariffs and restrictions on importation of assets and goods because it was strengthening the $ and making our exports expensive.

It become "beggar thy neighbor," and a race to the bottom which deepened a recession into The Great Depression.

Some believe that we will have deflation and THEN inflation:

http://seekingalpha.com/article/...

Fromthe419

That's why I believe the BOJ is failing in it's efforts at QE. The Japanese are fiscally conservative and don't want to take on debt they can not afford. The result is deflation, the BOJ can pump as much money into the system as they want but that does not mean the average Japanese citizen will take it and buy stuff they do not need or want. In America, QE pumps up stocks, housing, etc because Americans are debt slaves, we want everything right NOW, even if we can not afford it. Savers rule the day in Japan and here in the good ole US, we buy now and pay later whether we can afford it or not :)

Contango

Agreed. It'll be interesting to see if the BOJ experiment in 'printing your way to prosperity' works. Kinda doubt it.

I liked how the G20 said: NO PROBLEM.

http://www.reuters.com/article/2...

FYI: Here's a guy that I started reading four years ago. Not sure that I buy all of his shtick, but IMO, he's definitely 'worth a read.'

http://armstrongeconomics.com/ar...

Fromthe419

Thanks for the sources, I've been studying monetary policy and economics as a hobby (and to be prepared) for the past few years and have had my eyes opened by the things not only the Fed but all Central Banks have been doing. I honestly see the death of all fiat currencies at some point in my lifetime, I'm 45 and I think it might be possible by 2016 in the US. The death of the Petro Dollar would certainly be the death of our dollar. I just don't see the rest of the world allowing us to go 20T in debt with deficits every year.

Contango

@ Fromthe419:

IMO, the best course of action is to attempt to protect you and yours depending on how one views the severity, depth and length of the coming economic storm.

Financial collapse: Diversification of assets - equities, fixed, real estate & gold.

New Dark Ages: Guns, grub and gold.

I tend to be in the former camp.

Studying past economic collapses can be 'somewhat' helpful.

A good primer: http://www.amazon.com/Manias-Pan...

Unfortunately (or fortunately), History doesn't repeat, but it does rhyme.

The REAL cause:

http://www.youtube.com/watch?v=1...